It's now day 32 of the United States government shutdown; the longest in US history. In the current climate of such an event, we’re all keenly aware of how something like this can affect individuals, business, and the economy as a whole. Here we’ll take you through what the widespread effects of a shutdown, how it can affect your businesses, and how a financial SaaS provider like Webexpenses can help your company bridge the fiscal gap.
What are the economic implications of a government shutdown?
There are currently eight US federal departments and multiple federal agencies without funding, leading to the shutdown affecting the economy in several ways. Besides visa permit approvals and reduced agency service hours, the largest group affected by the shutdown are consumers, which in turn leads to slow business. There are 420,000 federal employees working without pay and 380,000 have been furloughed; just three weeks into the shutdown, the U.S.economy US economy lost 3.6 billions dollars. So that does that mean?
The answer begins with a statistic: consumers make up 70% of economic activity. Withholding payments from even just government employees can have a major impact on the economy. After the government shutdown in 2013, Assistant Professor of Finance, Northwestern University Scott R. Baker researched its effects on consumer spending. Their study concluded that, in the short run, there was an immediate 10% decline in consumer household spending from employees that were working without pay and a 15-20% decline in consumer household spending for furloughed employees.
This loss is from more than just consumers: Contractors that work with the government are also losing out on jobs and pay.
Barbara Kinosky, a lawyer with the government contracting consulting firm Centre Law & Consulting, says, “The on-site contractors who make the government work will receive nothing. No company can afford to keep employees on the payroll they cannot earn revenue on.”
How does a shutdown affect my business?
Overall, the economy has taken a slight hit from the government shutdown. The stock market has already dipped, curbing investor confidence. This also means that the currency may depreciate slightly. Depending on whether you’re business relies on domestic or international business, you will either be positively or negatively affected by this dip. There are a number of ways that can affect your business:
- Like investor confidence, consumer confidence may also be affected during a shutdown, resulting in less spending in general, ultimately affecting business revenue.
- If you are self-employed, operating as a contractor and relying on government work, your expected income will decrease or cease for the duration of the shutdown. Unlike federal employees, once the government reopens, contractors are unlikely to receive back-pay.
- Any small business owner looking to get a loan from the SBA will have to wait or consider alternative financing options.
- If you’re looking to hire new employees, the E-verify system that checks the eligibility of workers is no longer accessible.
- When a small business’ main clientele are government workers, then during this time they can expect a decrease in spending.
- Businesses need to anticipate longer times for employees traveling by air, with limited TSA workers all across the country. This is less economical as they are paying for the extra time employees are spending on trips. Accommodations and meals spend normally not incurred due to the extra time also should be considered at a higher cost than normal.
How can companies use SaaS to bridge an economic downturn?
Like the varying effects of a shutdown on business, there is a myriad of variable factors to consider when navigating your business through a government shutdown. The longer that the shutdown continues, the bigger the impact on the economy and considering the current shutdown is the longest sin U.S. history, it’s crucial for key financial decision-makers to prepare for upcoming challenges - now and in the future.
The negative effects created by the government shutdown can be viewed as roadblocks or something to get past. One way to keep your business processes moving is to consider implementing various SaaS solutions. Depending on the solution, you can cushion or avoid the effects of the government shutdown.
Here are three ways to bridge the gap created by a decrease in consumer, government, and investor spending using financial SaaS.
- Budgeting: An automated expense management system can help shed some light on areas of your business where spending can be cut to “save for a rainy day.” This applies to small companies that are being denied SBA loans during this time. If you were relying on this loan for the growth of your business, expense software can help you stay afloat. This also applies to businesses and contractors that still have to pay employees. Using SaaS can paint a realistic picture of how much cash flow you have in your budget to distribute payments on time.
- Compliance: As government agencies shut down, compliance standards may change, and the reimbursement process may slow down. Expense management software can help keep employees up-to-date with the happenings of this process. This eases the load on finance managers shoulders and helps keep employees within policy and compliant.
- Visibility: Real-time reporting helps in times when your budget is extra tight as well. It allows for approvers to see when and where company finances are being spent. Finance managers track spending every step of the way, allowing them to create reports before they are due. Webexpenses helps companies achieve this constant visibility and all in the palm of your hand with an expenses app.
Expense management can help in all these areas - from keeping employees compliant and within policy, to allowing easy reporting in real-time - allowing you to save time and money, two key metrics when attempting to bridge a downturn or unexpected financial hardship.